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Blog: Performance Management has passed away – may it rest in peace

Pia-Maria Thorén

Inspirational Director and founder of Agile People also an author of Agile People - A Radical Approach for HR and Managers (That Leads to Motivated Employees)

Have you experienced it too? That there are too many goals that have not been reached at the end of the year? Many of us have been victims of it, the traditional American performance process, where goals are set and evaluated by a manager who rates us. It is often in the form of a 9-box grid where every box says something about how the manager thinks we have performed in the past year. The headlines often say "achievement" and "potential", sometimes "performance" and "behaviour". Sometimes there are different rules for how important each of the parameters is. Sometimes performance is valued at 70% and behaviour 30%. In some modern companies, each parameter is worth 50% each. Either way, the desired outcome is that people behave in ways that maximise results and profits for the company. Emphasis is put on increasing performance and results, and on how to measure how well we meet set and numerical goals.

The development of your salary is directly affected by which box the manager thinks you should end up in. For every box, there is a corresponding salary box, which also depends on what role you have within the company. If changing your role in the company does not lead to a higher salary, there is no reason to change your role, right?

Your manager has most likely talked about you and your colleagues with other managers to “calibrate” your evaluation, just to make sure that there aren’t too many high achievers. Instead, they are aiming for an even, normative curve (Bell curve) where scores are populated in the middle, where people perform just like the large majority. A curve that has as many high scores as low scores. The curve must be even, we cannot have too many high achievers who get higher salaries than everyone else. The discussion between managers sometimes gets heated, because everyone wants to be able to put as many high marks as possible on "their" employees. Managers bargain with each other to decide who can set what scores and sometimes trade scores to make it as fair as possible. Every department’s curve has to reflect the accumulated curve of the whole company.

Being in the middle of the 9-box grid means that you are basically just like everyone else in the company. For the curve to be even, 70% should be in the middle. The problem is that no one wants to end up in the middle of the 9-box grid. Everyone thinks that they are better than that, and when given an “average” score, he or she gets disappointed and unmotivated. Because of this, managers tend to set marks that overall are higher than they actually are, creating an illusion that people are a bit better. This doesn’t work as it destroys calibration.

Engineers can easily understand how the process works (when you can measure goal fulfilment in numbers, it is possible to calculate exactly where each person ends up on each parameter), and people are evaluated and put in boxes as if they did not have feelings, expectations or dreams. Social pain is an inevitable consequence when we are directly valued and compared with other employees - we have received our annual verdict. This is how much you are worth to us. We have the power and knowledge to judge you as a human being, and it’s directly proportional to how much income you generate in the short perspective.

Goals are set with a focus on the highest possible profit and return. We usually think that 8-10 goals per employee is a reasonable amount of goals for the coming year. It is a top-down process, where employees are assigned their financial goals that they are expected to achieve during the annual goal cycle. A review with a manager happens, halfway through the cycle, to make sure that we are on the right track.

If we are a modern company, we may even make sure that we discuss the goals with the employees, before they are finally set. The manager asks how well the employee thinks that she or he will perform. Some "stretch" in the goals is desired so that each employee won’t be lazy during working hours and truly will perform. Reaching goals should be a bit difficult. Nevertheless, since employees know that they will be evaluated on goal fulfilment, they will not want to set too high goals so that they do not reach them. Rather you want to set lower goals to make sure that you will reach them. The reasoning could go something like this; “my salary depends on it and I have promised my family to go to Thailand this year, so I really need that bonus ...”

How do we actually see people in our organisations? It seems like employees are seen as just cogs in the machinery. A machinery created by a bunch of savvy people who are more similar to engineers than psychologists. The above description has been the reality for years for many companies in Sweden and in some organisations, there are no changes in how goals are set and how employees are evaluated. Some might have “improved” the processes by increasing focus on behaviours and adding in a couple of extra “coaching conversations” instead of the mid-year review. However, it is still built on the same old performance management foundation. Occasionally one can hear HR managers talk about how they “now added an extra discussion”, or “now we foremost discuss the development of the employees in our performance reviews”. Still, the manager does the evaluation and the power imbalance, that you have to be friendly with your manager, to not risk a bad evaluation, is still present.

The manager still has the power and can anytime make sure that you lose your job. Just like in the 1940s and 1950s, when Taylorism was at its worst. Back then people thought that to be successful, someone needed to decide exactly how everyone should work, and there were “intelligent” managers who decided how the workers should carry out their work. The goal was obviously to maximise profits and the CFOs were highly valued.

But what exactly is a successful business today? Is it to maximise profits and shareholder value? Or, are there other, more ethical values today, such as the impact on society, the climate, and people, that affect how we lead our employees and our organisations? Paradoxically, it seems that the companies that have lowered the performance requirements and the profit ambition, are the ones that make the most money, as a direct consequence of the reduced pressure and the increased well-being of the organisation. When people are given the freedom to reach their full potential, amazing things happen. Self-organisation happens when you stop preventing people from being their best selves at their place of work.

Today, most employees are knowledge workers and cannot be evaluated on the value of how many products he or she delivers per unit of time. Instead, it is the quality of our ability to innovate that becomes important. Douglas McGregor, who was a Leadership Professor at the MIT Sloan School of Management wrote a book in the late 1950s called "The Human Side of Enterprise." In the book, he presents his theory of human views X and Y. Human view X, states that people are lazy and unmotivated, if not rewarded, or punished (carrots and sticks). The human view Y, states that people want to perform and work, due to intrinsic motivation, to become the best they can and realise their full potential. There is no need for carrots and sticks. What is interesting is that the way we see people, X, or Y affects how we design our management processes. If we think that people need to be controlled and guided, then we will design control models, based on the corresponding human view. But if we instead believe that people by nature want to work and are motivated by themselves, and also want to take great responsibility, then there will be no need to control processes and approval flows, except in some cases. People who behave in X-ways do so because their managers treat them in X-ways.

Can we once and for all agree that the Performance Management process described in this text, has no place in our companies? That it reflects a dusty and outdated view of people and leads to bad behaviours, politics, sharp elbows, competition, and individualism instead of teamwork, collective responsibility, common direction, and happy, performing employees? Can we once and for all bury the 9-box grid, numerical goals set in a top-down process, and bonuses as a reward for achieving fixed goals on an annual basis? And let’s get rid of the calibration process, assessment of employees by managers, and the engineering human view?

We no longer work just to get paid, as we did in the past. The number of repetitive tasks that employees perform decreases, and today many tasks can just as easily be performed by a robot. In fact, many of the tasks that previously required a human, have today been replaced by robots and automated systems. Instead, we need to be creative, find new solutions, and invent new products and services our customers want and need. All to be competitive and continuously develop the organisation in a world that is constantly changing.

Next time we will look into how to increase motivation and performance without the old performance management process.

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